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Strategic Real Option and Flexibility Analysis for Nuclear Power Plants Considering Uncertainty in Electricity Demand and Public Acceptance

Cardin, Michel-Alexandre; Zhang, Sizhe and Nuttall, William J. (2017). Strategic Real Option and Flexibility Analysis for Nuclear Power Plants Considering Uncertainty in Electricity Demand and Public Acceptance. Energy Economics, 64 pp. 226–237.

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Nuclear power is an important energy source especially in consideration of CO2 emissions and global warming. Deploying nuclear power plants, however, may be challenging when uncertainty in long-term electricity demand and more importantly public acceptance are considered. This is true especially for emerging economies (e.g., India, China) concerned with reducing their carbon footprint in the context of growing economic development, while accommodating a growing population and significantly changing demographics, as well as recent events that may affect the public's perception of nuclear technology. In the aftermath of the Fukushima Daiichi disaster, public acceptance has come to play a central role in continued operations and deployment of new nuclear power systems worldwide. In countries seeing important long-term demographic changes, it may be difficult to determine the future capacity needed, when and where to deploy it over time, and in the most economic manner. Existing studies on capacity deployment typically do not consider such uncertainty drivers in long-term capacity deployment analyses (e.g., + 40 years). To address these issues, this paper introduces a novel approach to nuclear power systems design and capacity deployment under uncertainty that exploits the idea of strategic flexibility and managerial decision rules. The approach enables dealing more pro-actively with uncertainty and helps identify the most economic deployment paths for new nuclear capacity deployment over multiple sites. One novelty of the study lies in the explicit recognition of public acceptance as an important uncertainty driver affecting economic performance, along with long-term electricity demand. Another novelty is in how the concept of flexibility is exploited to deal with uncertainty and improve expected lifecycle performance (e.g. cost). New design and deployment strategies are developed and analyzed through a multistage stochastic programming framework where decision rules are represented as non-anticipative constraints. This approach provides a new way to devise and analyze adaptation strategies in view of long-term uncertainty fluctuations that is more intuitive and readily usable by system operators than typical solutions obtained from standard real options analysis techniques, which are typically used to analyze flexibility in large-scale, irreversible investment projects. The study considers three flexibility strategies subject to uncertainty in electricity demand and public acceptance: 1) phasing (or staging) capacity deployment over time and space, 2) on-site capacity expansion, and 3) life extension. Numerical analysis shows that flexible designs perform better than rigid optimal design deployment strategies, and the most flexible design combining the above strategies outperforms both more rigid and less flexible design alternatives. It is also demonstrated that a flexible design benefits from the strategies of phasing and capacity expansion most significantly across all three strategies studied. The results provide useful insights for policy and decision-making in countries that are considering new nuclear facility deployment, in light of ongoing challenges surrounding new nuclear builds worldwide.

Item Type: Journal Item
Copyright Holders: 2017 Elsevier B.V.
ISSN: 0140-9883
Project Funding Details:
Funded Project NameProject IDFunding Body
Nuclear Risk Issues: Environmental, Financial and Safety (NREFS)EP/K007580/1EPSRC (Engineering and Physical Sciences Research Council)
Keywords: Nuclear power plant; Flexibility in engineering design; Real options analysis; Decision rules; Public acceptance; Stochastic programming
Academic Unit/School: Faculty of Science, Technology, Engineering and Mathematics (STEM) > Engineering and Innovation
Faculty of Science, Technology, Engineering and Mathematics (STEM)
Item ID: 49308
Depositing User: William Nuttall
Date Deposited: 02 May 2017 15:20
Last Modified: 03 May 2019 02:53
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